5 trends affecting DC plan sponsors and how they expect to deal with them

Soaring inflation, supply chain snarls and the runup to the midterm elections already have made 2022 a tumultuous year. In the employer-sponsored retirement plan space, certain trends are emerging. How will plan sponsors respond?

Erik Daley, managing principal of Multnomah Group, an independent retirement plan consulting firm in Portland, Ore., recently shared five trends in the defined contribution retirement plan space that he expected will affect plan sponsors most over the next seven months. Pair those insights alongside a new survey from Willis Towers Watson showing what plan sponsors are expecting to take action on, and it’s apparent employers are in for a busy 2022 and 2023.

1. Income. “Retirement income is a huge focus for the retirement services industry, and there will be new options available for plan sponsors who would like to extend that provision in their plans,” Multnomah Group’s Daley said.

Will they take advantage of such options? In “2022: The Next Evolution of DC Plans Survey,” WTW reports that 36% of plan sponsors who view their DC plan as an important recruiting tool say they want to increase support in the next two years for decumulation features, including lifetime income. Only 27% of plan sponsors whose DC plans are not viewed as recruiting tools will do so.

2. Wellness integration. “We are continuing to see more and more movement on emergency savings integration with retirement plans, as well as student loan debt repayment,” Daley said.

WTW’s survey finds that currently 1% of plan sponsors let employees redirect DC contributions to emergency savings, in 2023 16% are planning to allow this.

And when it comes to student loans and DC plans, the survey finds that although a smaller number of sponsors — 4% — now allow employees to redirect DC contributions for student loans, a much larger segment of plan sponsors — 27% — says it will do so in 2023.

“Sponsors continue to explore ways to integrate DC strategy with financial wellbeing and resilience support,” the survey notes. To help identify employee needs, 17% of sponsors say they plan to use “listening strategies” in 2023 rather than making assumptions as to employee needs, and 37% have already done so in 2022 or earlier.

3. Fee compression on recordkeeper administration. “Some of it is good, some of it is bad, and all of it is impactful on you as a plan sponsor and fiduciary,” Daley said.

Despite the uncertainty of potentially bad effects of fee compression, 25% of plan sponsors who view their plan as a recruiting and retention tool indicate they hope to increase benefits levels ”to enhance employees’ financial security,” the WTW survey finds.

4. Cybersecurity. “The Department of Labor continues to work aggressively on cybersecurity and ensuring that plan participant assets are secure as well as the recordkeeper environments, both in the recordkeeper administrator side and in your human resource information systems side,” Multnomah Group’s Daley said.

Aside from the obvious dangers of bad actors in cybersecurity, plan sponsors recognize the importance of a good digital experience for employees. The survey finds that 47% of plan sponsors plan to “enhance digital employee experience” — that is, among those who view their plan as giving them an edge in recruiting and retention. Among those who don’t view their DC plan that way, only 38% plan to work on the digital experience.

5. Plan participation. “The final trend is improving participation rates in plans, whether it’s nominal incentives to begin savings or inventive plan designs,” Daley said.

The survey finds that a whopping 67% of sponsors say they already have created targeted communications in 2022 or earlier aimed at specific populations of their workforce to help affect participant behaviors and choices, and 16% plan to do so in 2023.